WHAT’S A RIGHTS ISSUE?
A rights issue is a way by which a listed Indian company can raise additional capital (Funds). However, instead of going to the public. The company gives its existing shareholders the right to subscribe to newly issued shares of company in proportion to their existing holdings. Why more companies are opting for Rights Issue to raise Capital
Reliance Industries Limited recently concluded its rights issue, raising a total of Rs 53,124 crore.
Several companies, including Mahindra finance, Tata Power, Shriram Transport Finance among others plan to raise funds through rights issue amidst the Covid-19 pandemic.
ML witnessed an oversubscription of 1.59 times.
While the success of ML and the big demand shows that there is investor appetite in the market for good companies with strong credentials at a good price.
It is important to note that the capital markets regulator, Securities and Exchange Board of India (SEBI),
Undertook certain reforms over the last one year that has made rights issue a more efficient process.
SEBI has provided temporary relaxations to companies in order to ease raising of funds.
WHY ARE INDIAN COMPANIES GOING FOR RIGHTS ISSUE IN CURRENT TIMES?
For a rights issue, there is no requirement of shareholders’ meeting and an approval from the board of directors is sufficient and adequate.
Therefore, the flip-flop time for raising this capital of companies is short and is much suited for the current situation.
REFORMS UNDERTAKEN BY SEBI FOR RIGHTS ISSUE
In November 2019, SEBI (Securities and Exchange Board of India) streamlined the rights issue process and the timelines for completion was significantly reduced from T+55 days to T+31 days — a 40% cut in the time.
It has also reduced the advance notice for the record date from seven working days to three working days.
In a major move that makes it possible for eligible investors to subscribe and trade their rights entitlement.
Sebi on January 22, 2020, laid down the detailed procedure of the improved rights issue process and the dematerialised REs framework.
TEMPORARY RELAXATIONS PROVIDED IN THE WAKE-QS COVID-19 BY SEBI?
SEBI relaxed certain guidelines for right issues that open on or before March 31, 2021.
It reduced the eligibility requirement of average market capitalisation of public shareholding from Rs 250 crore to Rs loo crore for a fast track rights issuance.
Reduced the minimum subscription requirement from 90 to 75 percent of the issue size.
Also, listed entities raising funds upto Rs 25 crores (erstwhile limit was Rs 10 crores) through a rights issue are now not required to file draft offer document with SEBI (Securities and Exchange Board of India). Why more companies are opting for Rights Issue to raise Capital